Safety tools - The Federal Highway Administration has a portal for Work Zone Safety. It includes some good highway safety tools and resources for you safety program.

Time Capsule - What was work life like in 1943? Check out The Ropes at Disney's, an employee handbook from 1943. Pop quiz: How many current labor law violations can you spot?

And in another look back at days of yore, Oregon's Willamette River Bridge Project posts an historic construction photo of the Willamette Bridge, inviting readers to spot the safety hazards. The answers are already posted, so if you want to play along, don't peek at the comments.

September 27, 2011

This may not be the most useful post you will read all week, but it is likely to be among the most amusing. If you haven't yet stumbled on the infamous "Tiger Mike" memos, you are in for a treat.

Edward 'Tiger Mike' Davis was the erstwhile CEO of the now defunct Houston-based Tiger Oil Company. You might expect an oil company to be a bit rough and tumble, but Tiger Mike took things to a new level. He didn't particularly like talking to his employees, he preferred typing memos. ("Do not speak to me when you see me. If I want to speak to you, I will do so. I want to save my throat. I don't want to ruin it by saying hello to all of you sons-of-b*tches.") And fortunately, thanks to the wonders of the Internet, his memos have been preserved for the ages. We link to them in all their glory: The Tiger Oil Memos. Please be advised, the memos do include a few cuss words

OK, what does all this have to do with workers compensation? We would refer you to #3 and #8 in attorney Alan Pierce's excellent Top Ten List as to Why Injured Workers Retain Attorneys (PDF). Actually, all ten points are worth thinking about. As a successful Massachusetts plaintiff attorney, Pierce should know. We would love to hear his cache of "bad boss" stories.

We have a category classification for posts on "best practices." We can see that there is a need for a "worst practices" category, too.

September 26, 2011

It's been over 20 years since NCCI changed the rules relating to the calculation of the experience modification factor. Given that experience modification determines the cost of insurance for all but self-insured employers, these changes require careful scrutiny. While some of the details have not yet been announced, one thing is clear: employers with higher-than-expected losses are likely to pay more for insurance. [NOTE: the Insider apologizes in advance for what is inevitably a rather technical discussion. For readers who would like additional background, check out our 2004 primer here.]

Under the current system, claim dollars - what's been paid and what's been set aside for future payment on each claim - fall into one of three categories:
- Primary losses: the first $5,000 of each claim. These losses carry the most weight and drive up the experience mod much quicker than the losses above $5,000.
- Excess losses: the losses above $5,000 within each claim. These are discounted in the calculation, with as little as 10 percent of the total included in the calculation (depending upon the size of the premium)
- State Rating Point: the cap on individual claim dollars beyond which the losses are excluded from the calculation; this varies from state to state, generally falling between $125,000 and $200,000.

NCCI is expanding primary losses from the current level of $5,000 up to 15,000. This change will take place over a three year period, with the ceiling rising to $10,000 in the first year, $13,500 in the second year and $15,000 in the third year.

Why does this matter? Primary losses are the major cost driver in experience rating. Primary losses are not discounted: they go into the formula dollar for dollar. As a result, employers with moderately large claims (between $5,000 and $25,000) are likely to see an increase in their experience mod.

Expected Losses
Employers who have analyzed their premiums carefully understand that experience rating is essentially a comparison: the individual employer's losses are compared to the losses for other employers performing similar work. The actual comparison is contained in the rates paid for insurance.

For example, in your state the rate for carpenters might be $10.00 per $100.00 of payroll. The total expected losses within this rate might be $5.00 per $100 of payroll. The expected primary losses (called the D Ratio) might be 20 percent of total losses: in this case, $1.00 per $100 of payroll.

As NCCI increases the ceiling for primary losses from $5,000 to $15,000, they must also increase expected primary losses. Unfortunately, they have thus far provided no information on how much expected primary losses (the D ratio) will increase. This number will determine just how much more employers with higher-than-expected losses will pay for insurance. Conversely, the revised D ratio will also determine how much of a discount will be given to employers with lower-than-expected losses. As with our changing climate, the fluctuations under the new system will be greater than in the past.

Given the trend toward very large (catastrophic) claims, it would not be surprising to see the state rating points also increase: for example, instead of capping individual claims at $200,000, the limit might be closer to $300,000. (To date, NCCI has been silent on this matter.)

Winners and Losers
NCCI actuaries are working under the requirement that total premiums within a state remain the same under the new system. In other words, when they apply the new rules, experience mods will go up or down for individual employers, but the total premium in the state will stay the same.

On an individual insured level, there will be winners and losers. Here is our advice to any employers with debit mods (above 1.0) in states managed by NCCI: follow these new NCCI developments carefully. [The easiest way to do this, of course, is to keep reading the Insider.] Primary losses remain the biggest cost driver in the workers comp system and primary losses within individual claims are about to double and soon triple. The strategies for experience mod management that were effective with the primary loss ceiling at $5,000 may no longer apply. As the rules of the game change, savvy managers will change with them.

September 22, 2011

Here is a very interesting case from Pennsylvania, where the definition of "normal working conditions" is fraught with terror (and which, as a result, closes the door to comp compensability while potentially opening another to lawsuits). But in our excitement to discuss this intriguing case, we get ahead of ourselves.

Greg Kochanowicz worked as a manager for the Pennsylvania Liquor Control Board. That might sound like an enforcement job, but ironically, his job was selling liquor from a retail outlet. On April 28, 2008, a masked man entered the store, pointed two guns at Greg and a co-worker, and forced them to empty the safe and cash register. The robber prodded the back of Greg's head with one of the guns. After getting the cash, the robber used duct tape to tie Greg and his co-worker to chairs in the office. There was no physical harm - just the threat of violence if Greg did not cooperate.

Following this incident, Greg suffered from anxiety, depression and flashbacks. He was too traumatized to return to work. Diagnosed with PTSD, he collected temporary total benefits under workers comp for what Pennsylvania calls a "psychic" injury. (It is worth noting that in 1981 Greg's brother was stabbed to death in a robbery, an incident for which Greg received no counseling or support.)

Abnormal Justice
Greg's employer appealed the WCJ ruling. A split panel of judges (4-3) reversed the finding of compensability on the basis that armed robberies were a "normal" working condition - and only "abnormal" working conditions lead to compensability for PTSD/"psychic" injuries. That's a very interesting notion, indeed.

In its reversal, the appeals court noted that robberies were quite common among the Liquor Control Board stores: in the five county area, there were 99 robberies since 2002, an average of one a month. In addition, employees were acutely aware of the risks. They received a written pamphlet entitled "Things you should know about armed robbery." Greg had read the booklet and received training related to it. In fact, he followed the employer's written protocol to the letter, thereby avoiding bodily harm to himself and his co-worker.

The appeals court is saying that armed robberies should come as no surprise to liquor board employees. They have been forewarned. And in the view of a majority of the judges, forewarned is foreclosed: there can be no compensability for a psychic injury as a result of normal working conditions. (Had Greg been shot, however, he would have had a compensable injury.)

OSHA to the Rescue?
The appeals court states that having a gun pressed to the back of the head is a "normal" working condition. If this is indeed true, then the employer has put employees in a workplace that is fraught with risk. This is something employers are not allowed to do.

Here is OSHA's General Duty Clause:

"Each employer shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees."

If the court is correct, if armed robberies are a "normal" working condition, then the employer has failed to eliminate an unacceptable risk. By leaving unarmed employees in high risk areas, they are out of compliance with OSHA standards. Given their knowledge of the likelihood of robberies, they should place armed guards in each store, particularly in evening hours. Their failure to protect employees from an all-too-routine hazard is unacceptable and may be grounds for lawsuits.

This case is wending its way toward the PA Supreme Court, where the arguments of the dissenting judges, led by Renee Cohn Jubelirer, are likely to prevail. Greg will probably qualify once again for workers comp. Yes, he received training in violence; he was well aware of the risks in his job; he even handled the situation with exemplary composure. But there is nothing normal about having a gun pressed into the back of your head, unless you are an actor taping a cop show for cable TV.

Tribute to Workers - A few weeks ago, we made a 9/11 memorial post, which focused heavily on the event, the aftermath, and the losses. More recently, we came upon an excellent New York Times feature that focuses on portraits and stories of workers who are rebuilding the World Trade Center, the largest construction project in the United States. It's a positive testament to the future, to resilience, and to some great American workers. The rebuilding effort has employed 3,200 workers. NYT features more about the WTC rebuilding project.

Student Athletes? - Jared Wade posts about how the NCAA Has Used the Term "Student-Athlete" to Avoid Paying Workers Comp Liabilities - part of a longer article that The Atlantic featured on college sports. Wade notes that, "For our purposes, however, the most interesting excerpt chronicles the how and the why of the NCAA's creation and widespread promotion of the term "student-athlete." According to Branch, the main reason that former NCAA head Walter Byers, in his own words, "crafted the term student-athlete" and soon made sure it was "embedded in all NCAA rules and interpretations" was because it was an excellent defense against being held liable for workers compensation benefits that those injured in athletic competition could seek."

Prescription Drugs - NCCI has issued Workers Compensation Prescription Drug Study: 2011 UPDATE (PDF), a 31 page report. The key findings:
*The indicated Rx share of total medical is 19%; this is slightly higher than the estimate given in our 2010 update
*OxyContin climbs from the number 3 WC drug in Service Year 2008 to number 1 in Service Year 2009
*Hydrocodone-Acetaminophen drops from the top WC drug in Service Year 2008 to number 3 in Service Year 2009
*Recent overall cost increases are driven more by utilization increases than by price increases
*Physician dispensing continues to increase in Service Year 2009 in almost every state
*Increased physician dispensing is associated with increased drug costs per claim *Per-claim Rx costs vary significantly by state

Agricultural worker protections - Laura Walter of EHS Today writes about A Disposable Work Force: Farm Worker Advocates Push for Agricultural Worker Protections. Her article focuses on a new report published by the advocacy organization Farmworker Justice which criticizes the H-2A temporary guest work visa program. The report claims that it makes agricultural workers vulnerable to poor working conditions. Farm worker advocates argue that to improve these conditions, foreign agricultural workers should be able to seek legal immigration status.

Battle of the giants - In catching up on a backlog of blog reading, we find a post from Roberto Ceniceros' Comp Time of great interest. It focuses on the battle of the giants chronicling the ongoing dispute between two workers' comp behemoths, AIG and Liberty Mutual. The dispute is being fought in court, and now in the court of public opinion via dueling websites.

Social Media - The more we use Twitter, the more we like it - we've certainly come across some great users and learned about some great pointers and links to breaking news. One Twitter user we've found particularly helpful is Kyle Thill posting for @ToyotaEquipment, a forklift dealership from Minneapolis. With 15,000+ followers, he must be doing something right! Safety is one of the ongoing themes of his posts, so if that's of interest to you, he's a good Twitter user to follow. He also issues The #Safety Daily Update, which is a curated "newspaper" of web-related safety matters. It's worth checking out.

Signs of life for the elusive hard market - At Terms + Conditions, Claire Wilkinson talks about an uptick in commercial insurance prices as reported by Tower Watson's latest commercial lines pricing survey.

Administrative note - We've shut down comments due to an unbelievable flood of comment spam. We're sorry about that - but we don't have the time to deal with it. If we come up with any new magical solutions to curtail it (we've tried many) we may reinstate comments at a later time.

September 20, 2011

The following is a guest post by Frank Pennachio of The WorkComp Advisory Group

In the September 7th edition of the Workers' Comp Insider, I noticed a reference and link to a tool known as the OSHA $afety Pays Program. I find value with the process of determining how many dollars of revenue is required to pay for an injury, but have serious reservations with the tool's calculation of indirect costs. Calculating the indirect costs of an injury is far more complex than the OSHA tool would indicate, and reliance on such a tool may erode credibility with an employer.

For example, let's look at two employees who work for a Franchised Auto Dealer that experience the exact same injury, medical costs, and lost time. One of the employees is a top notch auto technician who frequently outperforms the manufacturers allotted time for warranty work, thus generating significant profits for the dealership. This employee is difficult to replace and each day of lost time is costing the business substantial profits.

The other injured employee is an auto detailer who is much easier to replace and train. Profits are not affected at the same level for the detailer as they are with the loss of a highly productive technician.

So, we have the same injury, medical costs, and lost time, but dramatic differences with indirect costs to the employer. According to the OSHA tool, both would have the same indirect costs.

The best article I have read on this topic, "Accident Costs: Rethinking ratios of indirect to direct costs," was written by Fred A. Manuele and published in the January, 2011 edition of ASSE's, Professional Safety Magazine. As Manuele states, "The literature on direct and indirect costs does not present a uniformly accepted computation method. Differences in the various systems are substantial. More importantly, no published ratios are currently valid because the increase in direct costs (indemnity and medical costs resulting from an injury or illness) has exceeded the increase in indirect costs substantially in the past 15 years."

In addition, Manuele makes a strong case to support his position on the OSHA $afety Pays program: "Data on indirect costs produced using this program is misleading.

We want employers to understand and consider indirect costs. However, if employers suspects the formula to calculate indirect costs lacks credibility, they will likely question and remain skeptical on other more credible assertions and issues.

Indirect costs are real. Reducing them is a critical component of effective risk management and cost control. However, the issue is complex and deserves a conversation that is not reduced to a simple multiplier. Let's embrace the complexity and lead employers through a conversation that will enlighten and inspire.

Frank Pennachio is co-founder of The WorkComp Advisory Group, a sales training and consulting organization that works with agencies to leverage technical knowledge and sales strategy into successful new business development.

September 19, 2011

We know that there are individuals with extreme sensitivity to chemicals. What we don't know, in many cases, is whether exposure to chemicals in the workplace produces a compensable incident under workers comp. As with work-related illnesses (e.g., cancer possibly caused by workplace carcinogens), it can be difficult to prove that the workplace exposure is the predominant cause of the disability.

For a little over a year in mid-1990s, Deborah Chriestenson worked for Russell Stover Candies in Iola, Kansas. She had been diagnosed with multiple chemical sensitivity in 1986. She worked as a plant nurse, safety coordinator, and workers compensation benefits coordinator. Her office was located across the hall from a laundry facility. Chriestensen contends that she could smell bleach on a regular basis in her office. She claimed to have suffered respiratory symptoms as well as increasing headaches as a result of this exposure.

Chriestenson also claims she was occasionally exposed to methyl bromide fumes emanating from a room where nuts were fumigated. In addition, she claims that she was exposed to fumes from pesticides, truck exhaust, paint, and anhydrous ammonia at various times during her employment at Russell Stover. [As for the future eating of chocolate nut clusters from Russell Stover or any other manufacturer, I leave it to the reader to perform his/her own risk analysis...]

Soon after her termination from the company, Chriestenson filed a workers comp claim. She received temporary total disability benefits. Her claim wended its way slowly through the Kansas system, until 2006, 11 years after she left the company, a split panel of comp judges awarded her permanent total disability (PTD) benefits.

There were two key elements supporting of Chriestenson's claim: her own testimony and that of an expert witness, Dr. Grace Ziem, who specializes in chemical sensitivity. (Dr. Ziem's website is full of red flags for toxic exposures.) Dr. Ziem's testimony was key: without her connecting Chriestensen's problems directly to the workplace, there would be no comp claim.

Evidence-Based MedicineThe Kansas Court of Appeals has reversed the decision to award Chriestenson PTD benefits. While they recognize Dr. Ziem's skills as a medical provider, they question her credentials to connect Chriestenson's problems to the workplace. For one thing, Chriestenson is a lifelong smoker; Dr. Ziem casually dismisses any connection between smoking and Chriestenson's respitory problems. In addition, Dr. Ziem did not bother to examine the medical records pertaining to treatment of Chriestenson in the days and months immediately following her filing of a comp claim. Finally, the Kansas court calls into question Dr. Ziem's methods, citing court rulings in two other cases where her testimony was rejected outright.

In Georgia:
Our research has revealed that several courts across the United States have also had difficulty with causation opinions expressed by Dr. Ziem in chemical sensitivity cases. In Mason v. Home Depot U.S.A., Inc., 283 Ga. 271, 658 S.E.2d 603 (2008), Dr. Ziem was not permitted to testify on causation in an civil lawsuit against a manufacturer and seller of a floor covering product. The Georgia Supreme Court upheld a trial court's determination that "Dr. Ziem's methods [are] based only on her own experience and opinions, without any support in published scientific journals or any reliable techniques for discerning the behaviors and effects of the chemicals contained" in the floor covering product. 283 Ga. at 279.

In Tennessee:
Likewise, in Wynacht v. Beckman Instruments, Inc., 113 F.Supp.2d 1205 (E.D. Tenn. 2000), the United States District Court for the Eastern District of Tennessee did not allow Dr. Ziem to offer an opinion on causation in a product liability case arising out of alleged exposure to chemicals in the workplace. Although the court found her qualified to diagnose medical conditions and treat patients, it found that "[t]he ability to diagnose medical conditions is not remotely the same . . . as the ability to deduce, delineate, and describe, in a scientifically reliable manner, the causes of those medical conditions."

Given her prior history, the lack of compelling evidence in the workplace exposure and her ongoing smoking, Chriestenson is unable to prove a definitive connection between workplace exposures and her current inability to work. It is a sad case, for sure, and it is entirely possible that work contributed in some degree to her current dilemma. But the burden of proof in this type of claim is difficult, often impossible, to achieve. For all her expertise in treating chemical sensitivity, Dr. Ziem has fallen short in her effort to establish herself as a credible expert witness - at least in Georgia, Tennessee and Kansas.

September 16, 2011

If you haven't signed up yet, head on over to Business Insurance and register for Virtual Advantage 2011 - Workers Comp Trends & Cost Control Strategies. We're very pleased that our own Tom Lynch will be participating on a blogger panel with three other blog luminaries: Roberto Ceniceros, Joe Paduda, and Mark Walls. There will also be a keynote by NCCI's Harry Shuford, an expert panel on pharmaceutical cost controls for worker's comp - and more.
It's a one-day virtual conference - and best of all - there is no charge to attend.

September 15, 2011

David Williams has posted the In Their Own Words edition of Health Wonk Review over at Health Business Blog - healthcare costs and healthcare reform continue to be vitally important issues to workers' comp. Whither goes the 98% of the health care market, the workers' comp 2% has little choice but to follow. This biweekly digest by professionals, pundits, and practitioners is a good way to keep up on things.

September 15, 2011

The National Corn Growers Association and the National Grain and Feed Foundation - the research and education arm of the National Grain and Feed Association - recently unveiled a joint video project to promote awareness about grain bin safety on the farm. The two organizations teamed up in November 2010 to develop the video in response to an increase in U.S. fatalities and injuries associated with entry into grain bins.

It's pretty powerful. The video, shot on location in several states, provides a wide range of information on prevention tips and background data on grain bin accidents. The project also involved interviews with professionals in the fields of grain bin safety research and rescue.

September 12, 2011

First responders and oral histories
We are mindful that the 9-11 story was one that largely affected ordinary people who were going about their workdays. When the planes hit, thousands of first responders jumped into action and their courage and quick actions helped to save untold thousands. Among the many remembrances and stories in the10-year commemorative events, we found the 60 Minutes story on the experiences of first responders to be particularly powerful. It focused on 911 Responders Remember, an oral history project initiated by Dr. Benjamin Luft, director of the Long Island World Trade Center Program (the SUNY-Stony Brook arm of the WTC Medical Monitoring and Treatment Program consortium). This Center of Excellence provides service and monitoring to approximately 5,000 WTC responders across Long Island. These men and women are law enforcement officers, construction workers, electricians, emergency medical personnel, firefighters, iron workers, plumbers, dog handlers, doctors, and many others.

In addition to cancer, respiratory and pulmonary disorders and other physical problems, many workers still suffer from varying levels of emotional or psychological distress, including PTSD. This project is a national historical record, a public health document, and for many participants, a therapeutic exercise which allows them to open up to tell about events or things that they witnessed that they may not previously been able to talked about.

Hitting close to home
September 11 took an extremely heavy toll on the insurance industry. The terrible events claimed the lives of 295 employees of Marsh & McLennan and 176 employees at Aon Corporation. Dave Lenckus of Business Insurance offers recollections from insurance executives who were connected with or escaped from the WTC in his article Terror of September 11 lives in memory. Also see the company tribute pages: Remember: September 11, 2001 - a site to remember and celebrate the lives of those Aon employees lost on September 11, 2001, and Marsh & McLennan 9/11 Memorial - both a website and a physical memorial.

Tribute song & Firefighter Foundation
After 9/11, our own Tom Lynch recorded a 9/11 Tribute Song with Peter Clemente at Mechanics Hall in Worcester, MA. Actor and comedian Denis Leary used the song to raise money for the New York fallen firefighters. Leary is very devoted to firefighters and runs the Leary Firefighters Foundation. The Foundation was established in 2000 in response to a tragic fire in Worcester, Massachusetts that claimed the lives of Leary's cousin, a childhood friend, and four other firefighters. The Leary Firefighters Foundation's mission is to provide funding and resources for Fire Departments to obtain the best available equipment, technology and training. Inadequate equipment - particularly faulty tracking and radio equipment - contributed to deaths in both events.

Other resourcesUnderstanding 9-11: A Television News Archive - a library of news coverage of the events of 9/11/2001 and their aftermath as presented by U.S. and international broadcasters. A resource for scholars, journalists, and the public, it presents one week of news broadcasts for study, research and analysis.

September 9, 2011

For Labor Day Weekend, Peter Rotheberg took "a stab at the impossible task of naming the best songs ever written about working people." He compiled a noteworthy list of the Top Ten Labor Day Songs - a great list with more than a passing nod to some of the labor classics. (Thanks to Jeffrey Hirsch
at the Workplace Prof Blog for pointing us to the enjoyable post).

September 8, 2011

Florida doctors bought 89% of all the Oxycodone sold to practitioners nationwide last year and thousands of outside visitors flocked to the state to buy drugs at the 1,000+ pain clinics. But armed with new legislation, the state is cracking down hard by shutting down pill mills and suspending the licenses of about 80 physicians who were high-volume prescribers. And physicians are now generally barred from dispensing narcotics from their offices. In October, things will get even tougher as a new prescription drug monitoring system will be implemented.

Lizette Alvarez reports on on the Florida pill mill crackdown in The New York Times, stating that "As a result, doctors' purchases of Oxycodone, which reached 32.2 million doses in the first six months of 2010, fell by 97 percent in the same period this year." This article has some eye-opening observations about the scope of the prescription drug problem: "Last year, seven people died in Florida each day from prescription drug overdoses, a nearly 8 percent increase from 2009. This is far more than the number who died from illegal drugs, and the figure is not expected to drop much this year."

You can read more about how authorities are going after medical licenses of over-prescribers in a Miami Herald article by Audra Burch. This article discusses some egregious abuses, including a physician who dispenses from the back of a car and an office with long lines waiting outside and many cars with out-of-state license plates in the parking lot.

For more about Prescription Monitoring Programs, see:Alliance of States with Prescription Monitoring Programs - The Alliance was formed in 1990 to provide a forum for the exchange of information and ideas among state and federal agencies on prescription monitoring programs. Since then, it has grown to be a valuable resource to all those concerned with combating the increase in prescription drug abuse, misuse and diversion. Currently, 48 states and one territory either have operating Prescription Monitoring Programs, or have passed legislation to implement them.

September 7, 2011

Cavalcade of Risk - Emily Holbrook hosts this week's Cavalcade of Risk at Risk Management Monitor - go check it out. If you are interested in risk and insurance - and presumably so if you are reading this blog -- then RMM should be on your must-read blog list. If you aren't familiar with it yet, take a few minutes to poke around the archives Emily and Jared consistently do a terrific job on an array of risk related matters. It covers everything from bedbugs to earthquake hotspots.

Substance abuse & WC - Roberto Ceniceros posts about a controversy over stats citing the prevalence of drug and alcohol use in workers comp accidents and claims. Merchants Information Solutions says they are a factor in 65% of all accidents and 50% of all claims. Peter Rousmaniere disputes this and puts his money where his mouth is. "And here is why Rousmaniere thinks potentially exaggerated claims about the prevalence of alcohol and drugs in workers comp claims is dangerous: he says it "perpetuates an unhealthy tendency to shift attention away from safe worksite policies and towards blaming the worker."

Cool Tool - We just discovered OSHA's $afety Pays Cost Estimator, an interactive expert system to assist employers in estimating the costs of occupational injuries and illnesses and the impact on a company's profitability. Hat tip to the post at Safety Daily Advisor, which talks more about the tool.

Reminder: September 22 - If you haven't signed up yet, head on over to Business Insurance and register for Virtual Advantage 2011 - Workers Comp Trends & Cost Control Strategies. We're very pleased that our own Tom Lynch will be participating on a blogger panel with three other blog luminaries: Roberto Ceniceros, Joe Paduda, and Mark Walls. There will also be a keynote by NCCI's Harry Shuford, an expert panel on pharmaceutical cost controls for worker's comp - and more. It's a one-day virtual conference - and best of all - there is no charge to attend.

September 6, 2011

We have been tracking the fate of the FedEx business model in state courts as it collides with increasingly stringent definitions of "employee." FedEx operates under a sophisticated and ingenious contract designed to transform their drivers into "independent contractors." It's been a tough haul. For the most part, FedEx has been losing the argument in courts, state by state, and then delaying any ultimate resolution by filing appeals. Today we examine a similar business model: cleaning operations that are classified as franchises.

Coverall North America is one of the largest franchise cleaning operations in the world, with 9,000 franchise owners, 50 support centers and 50,000 customers. Franchise owners are trained by Coverall, wear Coverall uniforms, use Coverall mandated supplies and receive payment for their work through Coverall. Coverall bills customers and then pays the franchise owners, after deducting management and royalty fees plus any other incurred expenses.

The Massachusetts Standard
Unfortunately for Coverall, they have the burden of demonstrating franchisee "independence" in Massachusetts, which has a very tough, three-pronged standard for independent contracting [Ch. 149, Sec 148B]:
1. The contractor operates free from control or direction
2. The work of the contractor is fundamentally different from the work of the general contractor/owner
3. The contractor operates an independent business and is free to offer services to anyone

Under the MA requirements, independent contractors must meet all three criteria. Coverall first encountered the problem when out-of-work franchisees filed for unemployment benefits. The MA Division of Employment & Training focused on the third prong, determining that franchisees were indeed employees of Coverall, as their work was limited to that secured through Coverall.

In a case brought in Federal Court, franchise owners sought summary judgment against Coverall for the deceptive and unfair labor practice of calling them "independent contractors." U.S. District Court Judge William Young got the case. He focused on the second prong: Coverall had to demonstrate that they were in a fundamentally different business than their franchisees.

Coverall fashioned a clever but ultimately unsuccessful defense: Coverall corporate is not in the cleaning business, but in the franchising business. Coverall corporate trains people who clean offices and Coverall manages the finances of franchisees, but no one in Coverall actually cleans. Judge Young did not buy that argument. He determined that Coverall provides the administration for the franchisees, who provide the cleaning services. One cannot exist without the other. He granted summary judgment to the plaintiffs.

Who Works for Whom?
We are by no means at the end of this seemingly endless attempt to separate independent contractors from employees. What is at stake is pretty obvious: work performed by employees is a lot more expensive than that performed by independent contractors. The lives of most people working as "independent contractors" are difficult; the hours are long, the pay is marginal, the benefits non-existent. And if injured, these folks are usually on their own.

Listen to the names of some of the plaintiffs in this particular case: Aldivar Brandao, Denisse Peneda, Jai Prem, Pius Awuah, Benecira Cavalcante, Nilton Dos Santos. Can you hear exotic music in the names of people born in other lands? And can you hear something more ominous: the dissonence and dislocation of immigration, the struggle to survive in a new land that seemed full of promise from afar, but which has proven to be harsh, stingy and relentlessly demanding?

September 1, 2011

Health Wonk Review is launching its back to school season with The Hurricane Irene Edition posted by Avik Roy at the Apothecary. If you've been missing your biweekly dose of health wonkery during the abbreviated summer schedule, now is your chance to catch up!